All posts by Financial Independence Hub

The best bank accounts for Students

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Photo by Dan Dimmock on Unsplash

By Zack Fenech, RateHub.ca

Special to the Financial Independence Hub

As a new or returning post-secondary student, finances probably lean on the less exciting side of this new or continuing life chapter.

Be that as it may, properly managing your finances is still something you’ll have to do at one point or another.

Finding the right student bank account can help you save some money. In some cases, you can earn unique student tailored benefits: if you choose the right chequing account or savings account, that is.

After all, would you rather spend money on school supplies and experiences or pay monthly account fees or transaction commissions?

That said, the best student bank accounts offer a wide variety of options and advantages tailored to student living, and provide students with more financial freedom.

The other side of the coin for student bank account options might be using a free bank account. Free bank accounts allow you to use the account beyond graduation, in exchange for student tailored perks.

This article will detail the difference between the two types of accounts and which account is best for each category. It’ll also help you get a clearer understanding of which type of account is best for you.

Student Bank Accounts vs. free Bank Accounts

Student bank accounts are regular bank accounts that offer unique advantages to students. Some of these advantages include no monthly or annual banking fees, unlimited transactions and e-transfers, and sign-up promotions or point programs.

Another option fitting for students is free bank accounts offered by digital banks. Though not student accounts by definition, free bank accounts are entirely free and limitless, making them ideal for anyone, whether you’re a student or not.

The only difference from paid accounts is that they do not include many of the student-tailored advantages previously mentioned. Continue Reading…

Can home buyers hope to use the First-Time Home Buyer’s incentive (FTHBI)?

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

The brand-new First-Time Home Buyer’s Incentive will hit the real estate scene on September 2nd, but will it be useful in your local market?

The federal mortgage equity sharing program was initially announced in the March 2019 budget as a new Canada Mortgage and Housing Corporation (CMHC) initiative. Under the new program, qualifying first-time home buyers can receive an interest-free loan from the agency to go toward the purchase of a new home (5% for a resale property, and either 5% or 10% for a brand-new build).

In exchange, the CMHC retains the same percentage of equity in your property, which the homeowner must pay back as a lump sum when either the home is sold, or the 25-year mortgage amortizes.

Qualifying purchase price too low in some markets

However, the income and mortgage-to-income ratio (MTI) restrictions the FTHBI requires reduces its effectiveness in many markets, particularly where home prices are high and arguably where first-timers would need its help most. Under its criteria, home buyers cannot have a combined household income that exceeds $120,000, and their MTI cannot be more than four times their income. This means, for a home buyer earning the maximum and putting 5% down on a resale home, the largest home purchase they can make is limited to $505,000.

As well, it’s important to understand how the equity sharing portion of the FTHBI will work. Basically, the amount provided by the CMHC is added onto the home as a second mortgage, which won’t bear interest, and must be paid back all at once when the loan is due. However, as the CMHC retains 5% of the home’s equity, the amount they pay back will reflect how the property has appreciated or depreciated over that time frame.

For example, let’s say they receive a 5% loan of $25,000 through the FTHBI for a home purchase of $500,000. The homeowner sells the home several years later, and its value has increased to $550,000. The homeowner would then need to pay the CMHC back $27,500 to reflect 5% of the increased value of the home. However, if the home loses value over that time period, only the original amount of $25,000 would be due to the CMHC upon its sale. Continue Reading…

Adding Canadian and international REIT ETFs to your portfolio

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By Dale Roberts, Cutthecrapinvesting

Special to the Financial Independence Hub

You’ll notice that in the ETF Model Portfolio page on Cut The Crap Investing I first offer up the core portfolios with the traditional building blocks of Canadian, US and International stocks supported by a broad basket of Canadian bonds.

That’s a core approach embraced by many self-directed investors. You’ll even see that simple asset allocation embraced by Dan Bortolotti of Canadian Couch Potato. In fact, Dan will argue that any additions or ‘complications’ are not necessary.

Many will suggest that we do not need to spice things up much beyond that core ‘meat and potatoes’ asset allocation. A Canadian investor can certainly put together a sensible portfolio with those assets and that investor would have been rewarded with some very solid returns.

There are assets that can deliver the potential of greater returns and greater diversification. REITs and foreign bonds and emerging market equity funds would fall into that camp. You’ll see those holdings in the portfolios of many of the Canadian Robo Advisors. In the game-changing asset allocation portfolios from Vanguard you’ll find US bonds and emerging market stocks.

One Canadian Robo Advisor that employs REITs and foreign bonds is ModernAdvisor. I am a big fan of that firm and I am a fan of their asset allocation moves. Please have a read of ModernAdvisor. A Better Way For Canadians To Invest. The Canadian Robos can also be a great source of education by way of their blogs. Here’s a wonderful REIT primer from ModernAdvisor: Diversify With A REIT ETF.

In that post we’ll find the chart that strongly suggest why we should include REITs for greater portfolio diversification.

From that blog post …

In addition to the income aspect of REITs, real estate also provides strong diversification benefits for a portfolio already holds stocks and bonds. Since 2002, the 5-year correlation between the S&P/TSX Capped REIT Index with the S&P/TSX Composite Index has ranged between 0.23 and 0.76, averaging 0.55. The correlation with Canadian bonds is even more attractive, ranging between -0.02 and 0.34, and averaging 0.12.

Correlation of 1.0 indicates perfect positive correlation; that is, the two investments move in the same direction. Correlation of -1.0 indicates perfect negative correlation, that is, the two investments move in the opposite direction. Correlation of 0.0 indicates that there is no relationship between the two investments.

From the chart we can see that we do gain additional diversification.

Canadian REIT exposure is quite easy. The core Canadian REIT approach is covered by Vanguard with VRE, iShares with XRE and BMO offers ZRE.

  • For more on 2019 ETF performance including those REITs you can have a read of this recent post on Cut The Crap Investing.

US and International REIT exposure

Things get a little more tricky when we leave Canada due to withholding taxes and the potential of currency conversion charges. The go-to Canadian dollar International REIT is iShares CGR. That is a US and Global REIT.

Given that CGR is a Canadian dollar REIT ETF with US and International assets you will face those withholding taxes on income. On that, the folks at ModernAdvisor suggest that you hold that ETF in a taxable account whenever possible as you can claim the tax credit. That said, if you are only investing in registered accounts such as an RRSP and TFSA you might not let the tax considerations drive the bus. The additional diversification and potential of greater returns might rule the day for your portfolio.

Hold US REITs in a US Dollar Account

This is a good practice or portfolio approach for your entire equity assets. Continue Reading…

The vulnerable Euro

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By Jeff Weniger, WisdomTree Investments

Special to the Financial Independence Hub

These are interesting times for the euro. Relative to the Canadian dollar, it may be nearing the end of its four-year uptrend (figure 1).

Figure 1: EURCAD

 

Figure 2 shows the most recent Wall Street forecasts for 2019 exchange rates. Despite the great unknown of what happens when European Central Bank (ECB) president Mario Draghi passes the sceptre to Christine Lagarde this winter, the median estimate for EURCAD is a miniscule weakening of the loonie from C$1.484 to C$1.49 at year-end.

 

Figure 2: Street Consensus, EURCAD

Street Consensus EURCAD

Meantime, the backdrop is a total currency war, with Canada among the weakest of the fighters, which is a good thing for CAD bulls. Like the Bank of Canada, the Federal Reserve is — by comparison with many other central banks — fighting the currency war meekly. The U.S. central bank’s balance sheet has declined from US$4.5 trillion to US$3.8 trillion in about four years. But at the ECB and the Bank of Japan (BoJ), crisis-style quantitative easing is at the top of the rumour mill.

And though the Fed may not be fighting hard in the currency war, Washington makes up for it. President Trump is clearly jawboning for a weak dollar. There’s also the matter of the federal fiscal situation in the world’s largest economy, which doesn’t matter until it matters. The U.S. budget deficit-to-GDP ratio of 4.3% is the reddest ink in the G10. In sharp contrast, the Street forecast for Ottawa is for roughly balanced budgets as far as the eye can see.

Canada the exception?

We could almost understand the “need” for currency wars 5 or 10 years ago, but today, with the S&P 500 Index just off recent highs of around 3,000? Hardly. Yet almost every country is fighting this war, with the arguable exception of Canada, sitting here with a largely responsible budget and a central bank that may do nothing this year.

Continue Reading…

Financial Planning & the Retirement Earworm: Focus should change to Financing for Longevity

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By Mark Venning, ChangeRangers.com

Special to the Financial Independence Hub

At last, a headline that helps us progress, moving us to change the later life narrative with respect to the issue of financial planning.

“Longevity planning will be a central mission for advisers of the future.” In a brief July 22, 2019 article in Investment News with this headline, Ryan W. Neal cites their recent roundtable discussion on the Future of Financial Advice, where “industry leaders agreed longevity planning will increasingly play a role in how advisers work with clients, especially in the face of fee compression and automated investing.”

This is a welcomed repeated echo, from my persistent suggestion to financial planners since 2011 that the replacement phrase for “retirement planning” should be “financing for longevity.” My presentation at the Canadian Institute of Financial Planners 16thAnnual Conference in June 2018 was titled around just that: Changing Client Conversations Mind-set Shift. Financing for Longevity.

One of my key points for this audience was that this means a recognition of changing patterns in client conversations, related to money and financial management. Conversations need to reflect shifts in generational experiential differences and thus the need to help clients re-frame their attitudes and expectations. The future of financial planning is no longer exclusively a Boomer-centric market.

Financing for Longevity, more echoes  

Neal in his article refers to Joseph Coughlin, founder of MIT’s AgeLab and author of The Longevity Economy (2017). In another 2019 Investment News article comes one more echo in this call – from Coughlin, “(the financial planning)profession is at a new frontier to create an entirely new business around longevity planning …. We are done with retirement – the word, the idea, the products, the conversations were really good, for my father. But not for the next generation.”

Another echo from Lynda Gratton & Andrew Scott in their book The 100-Year Life(2016). In chapter 7 on Money, they talk about “financing a long life.” Earlier chapter 2 on Financing, part of this longevity planning is geared around “working for longer.” Pensions or no pensions aside, they submit,“The simple truth is that if you live for longer then you need more money. This means either saving more or working for longer.”

Continue Reading…